Basic principles reaffirmed

The input VAT deduction on business assets used for “mixed purposes” should be limited immediately according to the private use (commuting traffic included);

The taxation (for VAT purposes) of the private use on the basis of the fringe benefit as determined for income tax purposes is abandoned.

This implies that the actual professional use of business assets and of company cars in particular, should be determined annually and per asset in order to enable the calculation of the percentage of VAT deduction.

3 methods for company cars

In order to reduce/limit the additional administrative burden for businesses (i.e. detailed administration of mileage and proof of actual professional use), the Decision E.T. 119.650/3 foresees 2 optional methods to calculate the percentage of VAT deduction on a (semi-) lump sum basis, without administering the professional traffic.

Calculation method for putting a company car at disposal for free/without consideration

Method 1 (i.e. “actual professional use”) is based on the below formula:

Total Km’s – home-work distance (x2) – private Km’s = % VAT deduction

Total Km’s

Method 2 is semi fixed (the number of working days and of private Km’s are set arbitrarily), following the below formula:

Method 3 is a lump sum VAT deduction of 35% (i.e. 65% of VAT on vehicle costs are not deductible).

In its Decision E.T. 119.650/3, the Administration foresees the following ground rules:

The input VAT deduction can never exceed 50% (exception is made for light trucks…), even if the actual professional use is above 50%;

Methods 1 et 2 may be combined (free choice, per vehicle);

The starting point will be a VAT deduction based on an estimation of the professional use, however, with a correction/revision after one year. It is allowed to calculate an “average VAT deduction percentage” for the fleet, which is the percentage obtained when dividing the individual percentages of deduction (combination of methods of methods 1 and 2) by the total number of vehicles. ;

Method 3 is only possible as of 4 company cars. The choice for this method is set for the entire fleet and for 3 years.

BDO's Calculation Tool

BDO has developed a calculation tool to test the 3 different methods. Calculate here the VAT deduction for Company Cars.

Calculation method in case of a contribution paid by the employee

In case the employee pays a contribution for the private use of his/her company car, a letting of movable goods is deemed to take place and the Administration operates a double taxation of the private use:

STEP 1:

The starting point remains to be the deduction being limited to 50% on the costs of the vehicle;

Payment of VAT on the contribution for the private use (21% VAT included).

STEP 2:

Subsequently, it needs to be determined whether the amount of VAT included in the private contribution levels the minimum ‘normal value’ (in case the professional use according to one of the three methods is <50%);

Normal value = annual car expenses x (50% - % professional use);

VAT on a private contribution must be equal to 21% of the minimum ‘normal value’.

Date of entry into force and transitional provisions for 2012

The new VAT regime enters into force on 1 January 2013. A ‘transitional regime’ is foreseen for the calendar year 2012 allowing the taxable person to choose between the “old” and the “new” system for his entire fleet.

Lots of computations

The Addendum E.T. 119.650/3 foresees specific rules for older cars, cases of resale... for which it is recommended to consult a specialist.

This Administrative Guidance is likely to trigger requests for further clarification, but provides the main principles governing the taxation of “mixed use” of corporate assets, and in particular of the private use of company cars, for VAT purposes. Businesses, executives… can start to calculate the impact of the new taxation regime on their fleet and to assess their company car policies.

Contact

Should you have any further question or should you require a personal advice with respect to the impact of these rules on your company, please contact your usual contact person at BDO or you may send an email to btw-tva@bdo.be for the attention of one of the members of the Competence Center VAT: